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Jan 23 2017 at 01:00 PM
SALT LAKE CITY, January 23, 2017 – Zions Bancorporation ("Zions" or "the Company") today reported net earnings applicable to common shareholders for the fourth quarter of 2016 of $125 million, or $0.60 per diluted common share, compared to net earnings applicable to common shareholders of $117 million, or $0.57 per diluted common share, for the third quarter of 2016 and net earnings applicable to common shareholders of $88 million, or $0.43 per diluted common share, for the fourth quarter of 2015. Annual net earnings applicable to common shareholders for 2016 was $411 million, or $1.99 per diluted common share, compared to $247 million, or $1.20 per diluted common share, for 2015.
Harris H. Simmons, Chairman and CEO, commented, "We are pleased that our full-year 2016 results reflect solid performance in revenue growth, tight expense control, and strong growth in both pre-provision net revenue and earnings per share. We are encouraged to report that we achieved all of the stated financial goals that we outlined in the spring of 2015 for this year, including holding adjusted noninterest expense to less than $1.58 billion and achieving an efficiency ratio less than 66%. We have done this while simultaneously making a very substantial investment in technology that we expect will allow Zions to be both more efficient and more competitive for years to come." Mr. Simmons concluded, "We look forward to 2017 as a year that seems likely to experience reduced credit costs as the energy industry continues to heal and the credit metrics for non-energy loans, which constitute about 95% of our portfolio, are strong and generally stable."
Net interest income increased to $480 million in the fourth quarter of 2016 from $469 million in the third quarter of 2016. The increase in net interest income was primarily due to a $10 million increase in interest from investment securities. The Company continues to change its mix of interest-earning assets as average money market investments declined in the fourth quarter of 2016 by $773 million, much of which was deployed into term investment securities. Average securities increased in the fourth quarter of 2016 by $1.9 billion and average loans and leases held for investment increased by $152 million. The Company’s accelerated purchase of securities during the fourth quarter relative to prior quarters was driven by the repositioning of the balance sheet as the Company continues to moderately reduce its interest rate sensitivity.
The net interest margin increased to 3.37% in the fourth quarter of 2016, compared to 3.36% in the third quarter of 2016. The increase in net interest margin was driven by increased yields and growth in the investment securities portfolio.
Total noninterest income for the fourth quarter of 2016 was $128 million, compared to $145 million for the third quarter of 2016. The $17 million decline in total noninterest income during the quarter was primarily due to net securities gains and customer-related fees. Customer-related fees decreased by $8 million in the fourth quarter of 2016 compared to the prior quarter, which was primarily due to a $5 million decline in loan sales and servicing income resulting from valuation adjustments on the Company’s rate lock agreements and an increase in the servicing asset valuation in the third quarter of 2016 that did not recur in the current quarter. Customer-related fees increased by $5 million compared to the fourth quarter of 2015.
Another factor relating to the decline in noninterest income was a decrease in securities gains of $12 million from third quarter of 2016 primarily due to higher than normal gains in the prior quarter and a decrease of $6 million in the market value of one of the Company’s Small Business Investment Company ("SBIC") investments. Dividends and other investment income decreased by $5 million due to a third quarter increase in the market value of the Company’s SBIC investments followed by a decline in the current quarter.
Noninterest expense for the fourth quarter of 2016 was $405 million, compared to $403 million for the third quarter of 2016, and $397 million for the fourth quarter of 2015. The increase in total noninterest expense from the third quarter of 2016 was primarily due to a $6 million increase in the provision for unfunded lending commitments and a $4 million increase in net furniture, equipment and software, primarily as a result of increased technology expenditures during the quarter and a $1.5 million reclassification of software maintenance expenses from other noninterest expense. The Company continues to invest in technology and make progress on its core systems upgrade. These increases were partially offset by an $8 million decline in other noninterest expense, which was higher in the prior quarter due to a legal accrual and true-ups related to the alignment of a single back-office operating environment. As previously disclosed, management’s incentive compensation is tied to its efficiency initiative and key profitability metrics. Elevated fourth quarter noninterest expenses directly resulted in management incentive compensation that was $5 million less than planned for the fourth quarter of 2016.
Despite the modest increase in total noninterest expense during the fourth quarter, the Company met its expense and efficiency ratio goals for 2016 by recognizing adjusted noninterest expense of less than $1.58 billion and achieving an efficiency ratio of 65.8%. For information on non-GAAP measures see pages 18-21.
Asset quality for the total portfolio remained strong and was generally stable when compared to the prior quarter. Nonperforming assets were $573 million at December 31, 2016, compared to $587 million at September 30, 2016. The ratio of nonperforming assets to loans and leases and other real estate owned decreased to 1.34% at December 31, 2016, compared to 1.37% at September 30, 2016. Classified loans for the total portfolio were $1,577 million at December 31, 2016 and $1,615 million at September 30, 2016. Total net charge-offs were $27 million in the fourth quarter of 2016, or an annualized 0.25% of average loans, compared to $30 million, or an annualized 0.28% of average loans, in the third quarter of 2016.
The Company provided $1 million for credit losses during the fourth quarter of 2016, compared to $16 million during the third quarter of 2016. The allowance for credit losses decreased to $632 million at December 31, 2016 from $659 million at September 30, 2016, which was 1.48% and 1.55% of loans and leases, respectively. The decreases in the provision and the allowance for credit losses were primarily due to continued strong credit quality for the total portfolio in addition to a change in the portfolio mix, as oil and gas-related exposures declined, and residential real estate and commercial real estate term exposures increased. The reserve for unfunded lending commitments increased by $3 million as a result of adverse credit migration on certain oil and gas-related commitments.
Asset quality for the portfolio excluding oil and gas-related loans remained strong, with slight deterioration in nonperforming and classified metrics, which was driven by a few borrowers in various portfolios. The allowance for credit losses in the portfolio excluding oil and gas-related loans slightly decreased to 1.08% of loans and leases at December 31, 2016, compared to 1.13% at September 30, 2016, primarily due to changes in portfolio mix and continued nominal charge-offs outside of the oil and gas-related portfolio.
Excluding oil and gas-related loans, net charge-offs were $11 million, or an annualized 0.11% of average loans, in the fourth quarter of 2016, compared to $11 million of net recoveries, or an annualized (0.11)%, in the third quarter of 2016. Nonperforming assets for this portfolio were $239 million at December 31, 2016, compared to $211 million at September 30, 2016; the ratio of nonperforming assets to loans and leases and other real estate owned for these same periods was 0.59% and 0.52%, respectively. At December 31, 2016 and September 30, 2016, for the portfolio excluding oil and gas-related loans, classified loans were $896 million and $849 million, and criticized loans were $1,269 million and $1,313 million, respectively.
Loans and leases, net of unearned income and fees, were $42.6 billion at December 31, 2016, compared to $42.5 billion at September 30, 2016. The oil and gas-related portfolio declined $156 million from the prior quarter due to payoffs, paydowns, charge-offs and active management of the portfolio. This decline was offset by $227 million of growth in consumer loans, predominately in 1-4 family residential loans. Excluding the reduction in oil and gasrelated loans, net loans and leases increased $265 million during the fourth quarter of 2016. Unfunded lending commitments were $19.3 billion at December 31, 2016, compared to $19.1 billion at September 30, 2016.
During the fourth quarter of 2016, oil and gas-related loans decreased $156 million, or 7%, and total oil and gas credit exposure decreased by $218 million, or 5%. Oil and gas-related loans represent 5% of the total loan portfolio. Oil and gas services (oilfield services and oil and gas service manufacturing) decreased $120 million, or 16%, from the third quarter of 2016, and $361 million, or 36%, from the fourth quarter of 2015. Unfunded lending commitments decreased by $62 million during the fourth quarter of 2016, primarily in the oilfield services and oil and gas service manufacturing portfolios. Criticized oil and gas-related loans decreased $152 million, or 16%, during the fourth quarter of 2016, mainly due to payoffs and paydowns. Oil and gas-related loan net charge-offs were $16 million in the fourth quarter of 2016 and were predominantly in the oilfield services portfolio, compared to $41 million in the third quarter of 2016. As of December 31, 2016, the Company had entered into contracts to sell $40 million of oil and gas-related loans, and classified them as held for sale. The Company recognized $9 million of charge-offs in the fourth quarter on these held-for-sale loans. Approximately 86% of oil and gas-related nonaccruing loans were current as to principal and interest payments as of December 31, 2016, similar to the 87% reported as of September 30, 2016. The allowance for credit losses related to oil and gas-related loans decreased during the quarter and was 9% of such balances at the end of the fourth quarter of 2016.
Total deposits increased to $53.2 billion at December 31, 2016, compared to $50.8 billion at September 30, 2016, primarily due to seasonal increases. Average total deposits increased $1.5 billion to $52.2 billion for the fourth quarter of 2016, compared to $50.7 billion for the third quarter of 2016. Average noninterest bearing deposits increased to $23.6 billion for the fourth quarter of 2016, compared to $22.5 billion for the third quarter of 2016, and were 45% of average total deposits.
During the fourth quarter of 2016, the Company continued its stock buyback program and repurchased $45 million of its stock during the quarter at an average price of $31.69 per share, and has repurchased $90 million of its stock since July 1, 2016 at an average price of $31.15 per share, leaving $90 million of buyback capacity remaining in the 2016 capital plan (which spans the timeframe of July 2016 to June 2017). Despite the share repurchases during the quarter, the weighted average diluted shares increased slightly due to dilution from the average market price per share of the common stock exceeding the exercise price per share of warrants to buy common stock that have been outstanding since 2008 ("TARP" warrants - NASDAQ: ZIONZ) and 2010 (NASDAQ: ZIONW).
Preferred dividends are expected to be $10.4 million for the first quarter of 2017 and $12.4 million for the second quarter of 2017. Additionally, the Company reduced its long-term debt by $36 million during the fourth quarter of 2016 by exercising a call option for junior subordinated debentures related to trust preferred securities.
Accumulated other comprehensive income (loss) decreased to $(122) million from $10 million, primarily as a result of a decline in the fair value of the Company’s available-for-sale securities portfolio due largely to changes in the interest rate environment.
Tangible book value per common share decreased to $29.06 at December 31, 2016, compared to $29.16 at September 30, 2016, with the positive benefit of a $110 million increase of retained earnings during the quarter offset by the $132 million decline in accumulated other comprehensive income as described previously. The estimated Basel III common equity tier 1 ("CET1") capital ratio was 12.1% at December 31, 2016 compared to 12.0% at September 30, 2016; Basel III capital ratios are based on the applicable phase-in periods, however, the fully phased-in ratio was not substantially different. For information on non-GAAP measures see pages 18-21.
Zions has posted a supplemental presentation to its website, which will be used to discuss these fourth quarter results at 5:30 p.m. ET this afternoon (January 23, 2017). Media representatives, analysts, investors, and the public are invited to join this discussion by calling 253-237-1247 (domestic and international) and entering the passcode 44706729, or via on-demand webcast. A link to the webcast will be available on the Zions Bancorporation website at zionsbancorporation.com. The webcast of the conference call will also be archived and available for 30 days.
Zions Bancorporation is one of the nation’s premier financial services companies with more than $60 billion of total assets. Zions operates under local management teams and unique brands in 11 western and southwestern states: Arizona, California, Colorado, Idaho, Nevada, New Mexico, Oregon, Texas, Utah, Washington, and Wyoming. The company is a national leader in Small Business Administration lending and public finance advisory services, and is a consistent top recipient of numerous Greenwich Excellence awards in banking. In addition, Zions is included in the S&P 500 and NASDAQ Financial 100 indices. Investor information and links to local banking brands can be accessed at zionsbancorporation.com.
Statements in this press release that are based on other than historical data or that express the Company’s expectations regarding future events or determinations are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Statements based on historical data are not intended and should not be understood to indicate the Company’s expectations regarding future events. Forward-looking statements provide current expectations or forecasts or intentions regarding future events or determinations. These forward-looking statements are not guarantees of future performance or determinations, nor should they be relied upon as representing management’s views as of any subsequent date. Forward-looking statements involve significant risks and uncertainties, and actual results may differ materially from those presented, either expressed or implied, in this press release. Factors that could cause actual results to differ materially from those expressed in the forward-looking statements include the actual amount and duration of declines in the price of oil and gas, our ability to meet our efficiency and noninterest expense goals, as well as other factors discussed in the Company’s most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission ("SEC") and available at the SEC’s Internet site (http://www.sec.gov).
Except as required by law, the Company specifically disclaims any obligation to update any factors or to publicly announce the result of revisions to any of the forward-looking statements included herein to reflect future events or developments.